I recently came across this compilation from Resoomay, an applicant screening service, on the outrageous costs of making a bad hire. It's quite staggering. More so, when you look into the time, effort and expenses spent by recruiters and hiring managers in spotting and sourcing talent.
However, poor employees are a liability – right from hiring, down to the moment of firing.
Take the instance of a mid-level manager, paid $62,000 per year, who is terminated after 2 and a half years. By the time he leaves the organization, he would have cost you $840,000. Seems a bit exagerrated? Let's break down the facts a bit.
Hiring an employee incurs costs amounting to approximately $13,000. Compensation over 2 ½ years adds up to another $188,000. The costs for maintaining that employee, including bonuses and benefits, come down to $44,000. Disruption costs notch up another $47,000. Finally, once you decide to fire the underperformer, you might have to pay a severance of about $17,000. However, the heaviest impact a poor employee makes is through his continual inefficiency and incompetence. These might lead to mistakes, failures to meet deadlines, loss clients, or missed business opportunities, alll of which put together might cost your company a grand $536,000.
These are astounding figures. They imply that the amount of money you invest on a poor employee, is about 3 times the value he adds to the organization. This despite the fact that US companies spent over $125.88 billion in 2009 on employee learning and development in 2009.
Almost 75 percent of all hires are made to replace workers who left the company. The average cost of bringing in a new employee (excluding training costs) is $57,968. It just makes you wonder whether it isn't easier and cheaper to retain original talent, rather than go on a hiring spree. Or for that matter, do your employees even know what benefits your company offers?